Things that my radar has picked up from the world of politics, sport and occasionally music…

Tuesday, 19 October 2010

Spend Spend Spend...

Stephanie Flanders, the BBC's Economics correspondent has posted an excellent blog today. I normally find her quite informative without always agreeing but this was particularly good.

The gist of the blog is providing a picture of how we have come to be in the position we are. I think the graph she has included is quite telling. I would have liked it to provide a trendline up to 1997 as a comparison, I think this would show much lower government spending come 2015 than is predicted.

This is the reason that I still blame Labour for our recession. I know that this was a global crisis, however if they had been managing our countries finances better then this correction wouldn't be needed. Labour were lucky enough to come into power in a period of economic prosperity (bar the period around 9/11) the conditions were there for consistent economic growth. In periods like this the government shouldn't be spending everything that it receives, it should be holding a bit back for the inevitable storm that is to come. I know I'm guilty of following along with this, as I did vote Labour in 2005 (in a Labour/Tory area). It wasn't until the 2006 or 07 budget (after long enough studying economics) that I started to question whether Brown was as prudent as he claimed. For as long as I could remember he had been talking about debt and how it would come down in the future, though it never seemed to. It was this expansionary policy that has come around to bite the nation quite considerably.

It would be fair enough if we had been saddled with debt but find ourselves with state of the art services provided by the government, however I don't think we have. The NHS eats money, and is totally inefficient (though fine institution). Schools have improved in places, but not everywhere. My mother works in a school, she recently had an office developed for her (was needed but it isn't front line). She was told it had to cost at least a certain amount, if it was below that amount they couldn't class it as a capital project and get the funding for it (it would have had to come out of the normal budget - which would have reduced what could be spent on front line teaching). Public transport is laughable. As a commuter I have to endure delays on a regular basis, over crowded trains and spiraling prices. The bus alternative would take much longer and just isn't feasible or desirable! Whilst I applaud the concept of improving services it seems to me that much of these funds were wasted/swallowed up by higher wages, particularly at management level.

I therefore blame Labour for letting spending get away from them, on things that shouldn't have been priorities (such as ID cards) or inefficiently spent and not saving enough when they had a chance. If we had been running a budget surplus then we would have had no problems borrowing money to "bail out the banks", with that having the potential to make money rather than costing money. It would have saved us a fortune in debt financing and we could have used standard Keynesian economics to spend our way out of recession. It may not have been hitting us as bad, countries like Canada and Australia have come out of this fairly unscathed. Although this is unlikely with our reliance on the banking sector, the government could have been better positioned to act.

What I have described, what Labour should have done is in an ideal world. Unfortunately, we have a system where by a new government is elected every at least every 5 years. Therefore there is no incentive for the party in power to actually practice fiscal prudence. They know that their best bet on winning the next election is a generous budget (spending lots, taxing little), if they lose it's then on the other party(ies) to sort out. The Labour government (as I have said before) were only concerned with power and did what they needed to do (or thought they needed to do) to stay in power. Basic principal agent theory shows that governments will never be perfect, the principal (the electorate) and the agent (the government) have different utility curves/factors motivating them, however I think the way Labour handled their 13 years in power was incredibly short sighted and means I will probably never trust them again.

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As a coalition supporting Liberal Democrat my radar is looking out for stories that effect the Liberal Democrat interest. Additionally there will be occasional sport news particularly regarding England in the field of cricket or football with an unbias view of the Premier League (well until Hartlepool United reach there at least).

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